Widely held companies that don’t have a controlling shareholder should be thinking about defensive strategies in the event of a hostile takeover bid.
Thomas Yeo, partner at Torys LLP, says poison pills in the private company context are quite rare. “You’d have a shareholder agreement in place that would deal with matters such as people’s rights around the sale of shares.”
Think about “what happens if these people who are becoming shareholders today turn around one day and want to sell.” Mechanisms to control the sale of shares in private companies include shotgun clauses, a prohibition on the shareholders selling, rights of first refusal and piggyback rights. This ensures if one person is going to sell, the others have a right to tag along.
“If you have a private company that you’re proposing to take public, you should probably consider whether to put a poison pill in place from the outset,” says Yeo.
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This article was originally published on capitalmagazine.ca.